1. Field of the Invention
The present invention relates generally to trading systems. More particularly, the present invention relates systems and methods of generating liquidity by indicating interests in trading assets. More particularly, according to embodiments of the present invention, a confidential, anonymous matching system and method provides a means for matching indications of interest and executing orders based on the matches, thereby increasing the liquidity of an order execution system.
2. Description of the Related Art
Institutions trading large blocks of securities are faced with significant inefficiencies in the markets as a consequence of the markets' focus on retail traders. Such inefficiencies have led to enormous costs in executing institutional trades. Institutional traders cannot share their entire order size information with the markets without causing an adverse impact on the share price.
Recently, some institutions have turned to the use of “indications of interest” (IOs) to seek out liquidity. Typically a broker receiving a large block from an institutional customer would attempt to find a natural other side to the transaction to avoid a trade imbalance on the primary exchanges and reduce market impact. Matching systems are known in the prior art for identifying potential counterparties to a transaction. See, e.g., U.S. Pat. No. 5,924,082 to Silverman et al. In the Silverman system, traders use subjective criteria, such as a party's credit rating, geographic location, political affiliation, or other subjective criteria, to filter out unacceptable trading parties. The users of the system enter subjective ranking information for all other users, who are identified to each user in a display. A user then enters bid/offer information together with minimum rank information that represents the lowest rank of any potentially acceptable counterparty to the transaction entered by the user. A matching computer then matches bids and offers entered based on the bid/offer parameters and the ranking information. Once potential matches are identified, the matching computer signals the potential counterparties to enable the parties to communicate with each to commence direct negotiations.
The use of such “indications of interest” systems has certain advantages in that it is relatively easy to participate in an indication of interest pool, and traders maintain complete control over their orders. However, the current systems have significant shortcomings, in that 1) information leakage can occur through the negotiation process, which could result in adverse price impact; 2) negotiations frequently can be lengthy and cumbersome, and may not even result in a trade being transacted; 3) the liquidity pool is not diverse; and 4) transactions are limited to two parties.
Thus, there is a need for improved systems and methods for generating liquidity utilizing indications of interest.